The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-9039 IHTEBPHSTlTIOl'l 01 BlHIi-TG ACT OF 1933 (Copies to be sent to a l l Federal reserve "banks) November 26, 1934. Mr. . President, _________ n a t i o n a l Bank of . Dear S i r : This r e f e r s to your l e t t e r of August 21, 1934, addressed to the Board's General Counsel, with regard to the i n t e r p r e t a t i o n of the r u l i n g published on page 394 of the f e d e r a l Reserve B u l l e t i n f o r June, 1934, as to the absorption of exchange or c o l l e c t i o n charges by member banks under the provisions of s e c t i o n 19 of the f e d e r a l Reserve Act. You s t a t e that the __________ c l e a r i n g house banks are a t present employing a uniform a n a l y s i s of account formula which i n cludes exchange charges and other out-of-pocket expenses and you r e quest a r u l i n g on the question whether the waiving of any exchange charges or other out-of-pocket expenses would be i n v i o l a t i o n of the law. I t i s understood that you wish to be informed whether any such exchange charges or other out-of-pocket expenses may l a w f u l l y be i n cluded i n an a n a l y s i s of an account which a l s o includes a c r e d i t a l lowed the customer f o r i n t e r e s t or for the reasonable value of the account to the bank. In t h i s connection, you a l s o ask whether i t would be p e r m i s s i b l e f o r the c l e a r i n g house r u l e s to be amended t o provide f o r waiving of out-of-pocket charges f o r a nominal sum for X-9039 ° any one customer without regard for the amount of his balance, i n order to eliminate the annoyance of inconsequential charges against an account. Replying to your f i r s t question you are advised that the waiving of any exchange charges or other out-of-pocket expenses and the i n clusion of such charges or expenses by a member bank in an analysis of an account which a l s o includes a credit allowed the customer f o r i n t e r e s t or f o r the reasonable value of the account to the bank, would involve a payment of i n t e r e s t to the extent that such credit o f f s e t s such charges waived and absorbed by the bank, and would, accordingly, be i n v i o l a t i o n of the law i f the d e p o s i t i s payablecn demand, except as indicated below. The Federal Reserve Board has recently had occasion to consider whether member banks of the Federal Reserve System may l a w f u l l y operate i n accordance with the provisions of a clearing house rule reading as follows: "No bank s h a l l make a regular practice of absorbing for any customer a l l exchange or c o l l e c t i o n charges or other out-of-pocket expenses incurred on behalf of such customer; but, i n exceptional circumstances, when i t would create f r i c t i o n or misunderstanding to charge a customer f o r i s o l a t ed items of t r i v i a l amounts, the banks may absorb such individual items, including i s o l a t e d exchange and c o l l e c t i o n charges and charges f o r telephone c a l l s , telegrams and similar items, provided that the banks act i n good f a i t h and do not u t i l i z e the absorption of such items as a b a s i s for s o l i c i t i n g accounts or attempting to obtain an advantage over competitors." Where the amount of such items absorbed does not vary with or bear a s u b s t a n t i a l l y direct r e l a t i o n to the amount of the customer's balance, the absorption of such items can not be considered an indirect payment of i n t e r e s t within the meaning of section 19 of the Federal X-9039 Reserve Act, unless such items are included in an analysis of accounts which involves t h e i r "being o f f s e t i n whole or i n part "by an analysis credit allowed to the customer for i n t e r e s t or the earning value of the account. Even where the bank analyzes accounts i n t h i s manner, i t i s "believed that the absorption of i s o l a t e d items of the character described above i n t r i v i a l amounts may be disregarded i n accordance with the rule that the law takes no notice of inconsequential matters. The Board, therefore, sees no objection to the adoption of a rule subs t a n t i a l l y i n accordance with that quoted above. Your l e t t e r suggests that a member bank be permitted to absorb such charges i n amounts up to $2.00 per month for any one customer i n order to eliminate the annoyance of inconsequential charges against an account. While the Board does not f e e l that i t would be advisable to prescribe any f i x e d amount of charges which might be absorbed under the above-quoted r u l e , i t i s believed that such a rule w i l l afford a s a t i s f a c t o r y b a s i s for treatment of exchange charges and other o u t - o f pocket expenses by member banks which may see f i t to operate under a rule of t h i s kind. Very t r u l y yours, (Signed) Chester Morrill Chester Morrill, Secretary.
@FedFRASER